Oil Majors Face Lawsuits on Climate Change Issues

Two major Californian cities - San Francisco and Oakland - have filed lawsuits against five oil and energy super majors in late September. The cities have taken legal action against Chevron Corp. CVX , ConocoPhillips COP , Royal Dutch Shell plc RDS.A , ExxonMobil Corp. XOM and BP p.l.c. BP - all Zacks Rank #3 (Hold) companies. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

The companies have been accused of causing an adverse impact on the climate, resulting in global warming. The plaintiffs hold these fossil fuel companies accountable for rising sea levels, changing landscapes, higher global temperatures and increased risk of storms and droughts.

The cities are located on the opposite sides of San Francisco Bay, and the lawsuit claims that the region's water level is already on the rise. If the companies lose the case, they will be liable to pay billions of dollars in fines.

Though the lawsuits do not specify the compensation amount, updating San Francisco's seawall alone could cost up to $5 billion. Pre-emptive damage charges for an estimated rise in sea levels of up to 10 feet by 2100 are also likely to be incurred by the companies. Flood protection initiatives in Oakland are expected to cost roughly $56 million.

Officials of both cities allege that despite being aware of the adverse effects of fossil fuel on the climate, the companies continue to recklessly produce and market these products.

Failed Lawsuits

Notably, many such lawsuits have been filed in the past to hold individual energy companies accountable for climate change but they did not bear results. In 2009, Kivalina - city in Alaska - filed charges against many oil companies but the case got dismissed in the court as the Clean Air Act and the Environmental Protection Agency repealed the claims of the city officials.

In 2011, the Supreme Court of U.S. overruled the public nuisance claims of eight states and the New York City against the electric utility companies. In July, similar litigation cases were filed by two coastal counties of California -Marin and San Mateo - against oil majors like Chevron, BP, Shell and ExxonMobil among others for rising sea levels. The charges claimed that the companies were responsible for about 20% of greenhouse gas emissions between 1965 and 2015.

The verdict is pending and there are chances that this case might also fail given the complex nature of legal requirements. Also, with the energy industry remaining impressive and President Trump's dismissal of climate change legislation, things have become difficult for plaintiffs. Trump's unwavering belief in deregulation as well as his denial of climate change science and desire to roll back the work of the Obama administration has been raising concerns of late.

Discrepancies Between Words and Actions

While Chevron recognizes the effects of climate change, it doesn't believe that such lawsuits are a solution to this grave issue. According to one company's spokesperson: "Reducing greenhouse gas emissions is a global issue that requires global engagement and action. Should this litigation proceed, it will only serve special interests at the expense of broader policy, regulatory and economic priorities." Thus whether the lawsuit is simply a political move to shame fossil fuel overlords or is actually a drive to a legal change remain a wait-and-see story.

While companies like Chevron and ExxonMobil have started recognizing the climate change, their actions seem to tell a different story. They continue to produce and invest in fossil fuels. Both companies have opposed the cleaner environment resolutions by investors in the latest annual meet.

ExxonMobil has also been accused of publicly downplaying climate change facts stated by its own scientists. Despite the pressure by the investors and the climate activists, the companies remain passive toward the adoption of cleaner practices.

Per the latest Carbon Majors report, around 71% of the global emissions have been caused by just 100 companies, wherein ExxonMobil, Shell, BP and Chevron rank among the top four contributors. The report also highlighted that the contribution of fossil fuels to climate change have doubled since 1988. The report further pinpoints that global average temperature will rise by 4 degree Celsius by the end of the century if the fossil fuel extraction continues at the same rate.

Only stringent regulations and their effective implementations will help in the reduction of carbon emissions in the future and facilitate effective transition to cleaner and renewable energy sources. The shift in global climate has already prompted some energy companies to adopt such measures.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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